CMU Business Editor Chris Cooke looks back at the key trends and developments in the music industry in 2010.
EMI
However well you’re doing on a day-to-day basis, and EMI is doing quite well on a day-to-day basis, a very public multi-billion pound loan with an unfriendly bank that comes with severe covenants you’ve no way of sticking to is gonna get you down. Which is possibly why EMI keeps losing key executives. And certainly why the London major has been in the news so much this year.
In March, Elio Leoni-Sceti, the CEO of the EMI recordings business, abruptly quit just weeks after telling Management Today how much he liked the job. Former ITV boss Charlie Allen took over with lots of grand plans, only to be replaced himself in June by EMI’s publishing chief Roger Faxon.
Those loan covenants required owners Terra Firma to inject over £100 million into EMI in June, and for a time it seemed likely the equity group’s financial backers wouldn’t let them. In the end they did. But a similar cash injection will be needed in 2011 and it seems even more likely Terra Firma’s backers will block it.
This has all meant constant and continuing speculation that Terra Firma will have to give EMI up to its bank, which will almost certainly sell the music firm on, possibly splitting it up first. It was thought Warner would buy the record labels and BMG the publishing company, though the latter has now said it’s more interested in EMI’s recordings business. Whatever, there will be more dramas at EMI in 2011; whether it will still be here this time next year is another matter.
TERRA FIRMA V CITIGROUP
Probably the most amusing chapter of the EMI saga this year was when the major’s owners Terra Firma took the bank to which the music firm owes three billion, Citigroup, to court in New York. The equity group had begun legal proceedings in late 2009 after the US bank refused to restructure the mega-loan Terra Firma had saddled EMI with when it bought the music company in 2007. Terra Firma boss Guy Hands claimed Citigroup man David Wormsley had given him dud advice that made him bid too high and too soon for EMI back in 2007.
Wormsley had lied, Hands said, because he and Citigroup had a vested interest (ie money to make) in seeing Terra Firma’s takeover of EMI happen. Hands had a very clear recollection of receiving three phone calls from Wormsley in the days before buying EMI. But, alas, the calls had not been documented, and Hands’ memory of everything else ahead of the big EMI purchase – with the exception of the biscuits he ate – was rather hazy. Hands came over as a bit of a bumbling, bitter fool, and the jury didn’t buy his story. A court defeat which many reckon will make it even harder for Hands to persuade his backers to pump more money into EMI in 2011.
LIVE IN THE USA
The record industry is in terminal decline, but the live industry is booming, right? Well, parts of the live industry have been booming over the last decade, but not all parts, and not in all markets. And in 2010, in the most important market, the live music industry peaked. For years, with ever rising ticket prices, and more and more additional fees added by promoters, venues and ticket agents, pessimists had been predicting the bubble would burst. And in the US in 2010 it did.
For the media, that the live industry had peaked was best illustrated through the share price of Live Nation, the biggest live music company of them all, whose merger with Ticketmaster was only fully approved in the UK in May. In July, their top execs Michael Rapino and Irving Azoff admitted ticket sales were down and looked likely to decline further. They insisted it was a temporary wobble, but their share price promptly fell 16%, leading to a frustrated Azoff railing against his shareholders, accusing them of being “short-sighted”. Ticket prices have been cut and all those add-on fees curtailed. Now it remains to be seen whether the US live market will recover in 2011, and whether any of that gloom will cross the Atlantic to impact on the still pretty healthy UK live sector.
HMV AND MAMA
A company which could do with the UK live industry staying in relatively good health is HMV, whose only good news this year came from the gigs and venues side of its business. HMV has such a thing because, just before Christmas last year, it announced its intent to buy the MAMA Group, the London-based venue owning, festival and gig promoting, artist managing, brand partnering company, and one of the UK music industry’s success stories of recent years. The deal went through in February. Some streamlining followed, but MAMA – as a stand alone business within the HMV Group – still seems to be doing rather well.
It’s a shame for HMV that the same can’t be said about its retail business, which is what most investment types in the City focus on. After enjoying a little boost in recent years thanks to the demise of pretty much every major competitor in entertainment retail, the HMV shops had a difficult year amid rising supermarket and online competition, not to mention the wider recession. Attempts to diversify the HMV retail business were not as well received as the company’s diversification into live, and the firm’s share price has slumped. Though optimists point out that, while the shops may be ultimately doomed, with its MAMA acquisition HMV still has long term potential. That might mean, with that slumping share price, HMV is now a takeover target.
RISE OF BMG
Of course it’s not all doom and gloom in the world of music rights, with some of the opinion there is still much money to be made from exploiting the various music-based copyrights, though probably by applying a different business model than that of the traditional record company. Probably most interesting in this domain is the all new BMG. Having sold off itsr old music publishing company to Universal and its record company to Sony, German media giant Bertelsmann launched BMG Rights Management in 2008, a new company that would manage and monetise all kinds of music rights, straddling the record and publishing industries.
Bertelsmann later sold half the company to equity types KKR, securing itself a big pot of cash for buying up recording and (mainly so far) publishing catalogues, and the acquisition spree continued in 2010, with BMG absorbing the likes of Evergreen, Stage Three, Adage, PRK Music, Cherry Lane and, perhaps most notably, Chrysalis in the last twelve months. Meanwhile, a number of new offices were opened and single artists deals announced. In terms of growth through acquisition it’s been a big year for BMG, making it a very interesting company to watch in 2011, as Bertelsmann makes moves to reclaim its seat around the ‘major music company’ table.
SIMON COWELL
Love him or loathe him, you can’t deny that Simon Cowell went from strength to strength in 2010, as the ‘X-Factor’ machine, for reasons best known to no one, only grew in popularity in the UK, while global expansion of the X franchise saw its founder quit his job as judge on ‘American Idol’ so he could launch an American version of the show.
But Cowell’s biggest achievement of the year was probably his new deal with Sony Music regarding the Syco business, which was previously a division of the major. With Syco reportedly responsible for at least half its UK’s revenue, Sony Music was clearly going to be generous in its bid to ensure Cowell stayed with them once his contract came up for renewal this year. The deal that was done made Syco a stand alone company in which both Sony and Cowell (and his business partners) would have a stake. Cowell enters 2011 even more powerful in the world of pop-based music and telly.
MUTE
The indie community had some good news in 2010, the Mute label was rejoining them after eight years as a division of EMI. In September, Mute chief Daniel Miller announced a deal with EMI UK which would make his record company a stand alone business once more, albeit with the major as a distribution partner. Miller would also continue to consult for EMI which was keeping some of Mute’s more bankable artists on its rosters.
The deal means the Mute label will be able to work more closely with the Mute publishing company that remained independent throughout. Meanwhile, Miller announced the launch of a Mute artist management agency. With recordings, publishing and management now all under one roof, Mute will be a indie to watch in 2011.
